Entity information:
Income Taxes:
Components of income before income taxes consists of the following (in thousands):
 
 
2017
 
2016
 
2015
U.S.
 
$
66,555

 
$
22,203

 
$
38,615

Foreign
 
13,106

 
13,153

 
18,343

Total
 
$
79,661

 
$
35,356

 
$
56,958


The provision for income taxes consists of the following (in thousands):
 
 
2017
 
2016
 
2015
Current
 
 
 
 
 
 
Federal
 
$
7,333

 
$
2,649

 
$
(659
)
State
 
933

 
670

 
859

Foreign
 
4,429

 
3,282

 
3,423

 
 
12,695

 
6,601

 
3,623

Deferred
 
 
 
 
 
 
Federal
 
$
8,156

 
$
2,702

 
$
6,928

State
 
583

 
193

 
495

Foreign
 
1,577

 
(701
)
 
225

 
 
10,316

 
2,194

 
7,648

Total
 
$
23,011

 
$
8,795

 
$
11,271



A reconciliation of the U.S. statutory tax rates to the effective tax rates on income follows:
 
 
2017
 
2016
 
2015
U.S. Statutory Rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State Taxes, Net of Federal Tax Benefit
 
1.5
 %
 
2.0
 %
 
2.0
 %
Impact of Foreign Operations and Tax Rates
 
(2.1
)%
 
(9.7
)%
 
(2.7
)%
Valuation Allowance
 
5.3
 %
 
3.3
 %
 
1.9
 %
Changes to Unrecognized Tax Benefits
 
(4.5
)%
 
2.8
 %
 
4.3
 %
U.S. Manufacturers Deduction
 
(2.4
)%
 
(3.7
)%
 
(2.5
)%
Research & Development Credit (1)
 
(3.1
)%
 
(10.6
)%
 
(18.1
)%
Goodwill Impairment
 
—
 %
 
7.6
 %
 
—
 %
Other, Net
 
(0.8
)%
 
(1.8
)%
 
(0.1
)%
Effective Tax Rate
 
28.9
 %
 
24.9
 %
 
19.8
 %

(1) "Research & Development Credit” in fiscal 2016 includes fiscal 2016 and fiscal 2015 federal research & development credit due to the reenactment of the credit during fiscal 2016.  In fiscal 2015, this item primarily relates to federal research & development tax credits associated with the completion of a research & development tax credit analysis of prior fiscal years.
The components of deferred income taxes were as follows (in thousands):
Long-Term Asset (Liability):
 
2017
 
2016
Difference Between Book and Tax Related to:
 
 
 
 
Pension Cost
 
$
64,216

 
$
90,016

Accumulated Depreciation
 
(48,679
)
 
(41,319
)
Intangibles
 
(54,360
)
 
(56,755
)
Accrued Employee Benefits
 
38,477

 
39,083

Postretirement Health Care Obligation
 
12,865

 
14,107

Inventory
 
15,969

 
13,360

Warranty
 
16,008

 
16,517

Payroll & Workers Compensation Accruals
 
7,087

 
7,620

Valuation Allowance
 
(23,461
)
 
(19,371
)
Net Operating Loss/State Credit Carryforwards
 
26,436

 
24,942

Other Accrued Liabilities
 
13,709

 
10,117

Miscellaneous
 
(3,904
)
 
(119
)
Deferred Income Tax Asset (Liability)
 
$
64,363

 
$
98,198


Total deferred tax assets were $171.3 million and $200.3 million as of July 2, 2017 and July 3, 2016, respectively. Total deferred tax liabilities were $106.9 million and $102.1 million as of July 2, 2017 and July 3, 2016, respectively. During fiscal 2017, the total valuation allowance increased by $4.1 million. The Company early adopted ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (see Note 3) as of July 2, 2017. The Company retrospectively reclassified $44.7 million of current “Deferred Income Tax Assets" to "Long-term Deferred Income Tax Assets” on the accompanying Condensed Consolidated Balance Sheet as of July 3, 2016.
Deferred tax assets were generated during the current year as a result of foreign income tax loss carryforwards in the amount of $1.9 million. At July 2, 2017, there are $7.5 million of foreign income tax loss carryforwards, consisting of $5.3 million that have no expiration date, and $2.2 million that will expire within the next 5 to 10 years. A deferred tax asset of $18.9 million exists at July 2, 2017 related to state income tax losses and state tax credit carryforwards. If not utilized against future taxable income, this amount will expire from 2018 through 2028. Realization of the deferred tax assets are contingent upon generating sufficient taxable income prior to expiration of these carryforwards. At July 2, 2017, a valuation allowance of $7.5 million is recorded for the foreign losses which the Company believes are unlikely to be realized in the future. In addition, a valuation allowance of $15.9 million is recorded related to state tax credits that are unlikely to be realized.
The Company does not record deferred income taxes applicable to undistributed earnings of foreign subsidiaries for which the Company intends to reinvest such earnings indefinitely outside of the U.S. The undistributed earnings that the Company intends to reinvest amounted to approximately $88.6 million at July 2, 2017. If the Company were to distribute these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
The change to the gross unrecognized tax benefits of the Company during the fiscal years ended July 2, 2017, July 3, 2016, and June 28, 2015 is reconciled as follows:
Unrecognized Tax Benefits (in thousands):
 
2017
 
2016
 
2015
Beginning Balance
$
10,922

 
$
10,551

 
$
7,657

             Changes based on tax positions related to prior year
(861
)
 
(208
)
 
4,573

Additions based on tax positions related to current year
461

 
579

 
691

Settlements with taxing authorities
(4,437
)
 
—

 
(2,120
)
Lapse of statute of limitations
(99
)
 
—

 
(250
)
Ending Balance
$
5,986

 
$
10,922

 
$
10,551


As of July 2, 2017, gross unrecognized tax benefits that, if recognized, would impact the effective tax rate were $4.7 million. There is a reasonable possibility that approximately $1.0 million of the liability for uncertain tax positions may be settled within the next twelve months due to the resolution of audits or expiration of statutes of limitations.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total expense (income) recognized for fiscal years 2017, 2016 and 2015 was $(0.2) million, $0.2 million, and $0.1 million, respectively.
As of July 2, 2017 and July 3, 2016, the Company had $1.2 million and $1.4 million, respectively, accrued for the payment of interest and penalties.
At July 2, 2017 and July 3, 2016, the liability for uncertain tax positions, inclusive of interest and penalties, was $7.2 million and $12.3 million, respectively, which is recorded as an other long-term liability within the Consolidated Balance Sheets.
Income tax returns are filed in the U.S., state, and foreign jurisdictions and related audits occur on a regular basis. In the U.S., the Company is no longer subject to U.S. federal income tax examinations before fiscal 2013. The Company is currently under audit by various state and foreign jurisdictions. The Company is no longer subject to tax examinations before fiscal 2007 in its major foreign jurisdictions.